The information included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
our unaudited condensed consolidated financial statements and the accompanying
notes included in this Quarterly Report on Form 10-Q, and the consolidated
financial statements and accompanying notes, as well as Management's Discussion
and Analysis of Financial Condition and Results of Operations contained in our
Annual Report on Form 10-K for the year ended
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect the views of our management regarding current
expectations and projections about future events and are based on currently
available information. Actual results could differ materially from those
contained in these forward-looking statements for a variety of reasons,
including, but not limited to, those discussed in our Annual Report on Form 10-K
for the year ended
Overview
Tripadvisor is a leading online travel company and our mission is to help people around the world plan, book and experience the perfect trip. We operate a global travel guidance platform that connects the world's largest audience of prospective travelers with travel partners through rich content, price comparison tools, and online reservation and related services for destinations, accommodations, travel activities and experiences, and restaurants.
Under our flagship brand, Tripadvisor, we launched www.tripadvisor.com in the
Executive Financial Summary
Tripadvisor is the world's largest travel guidance platform, as measured by monthly unique users. As a result, Tripadvisor represents an attractive platform for travel partners - including hotel chains, independent hoteliers, OTAs, destination marketing organizations, and other travel-related and non-travel related product and service providers - who seek to market and sell their products and services to a global audience. Tripadvisor's platform and product offerings enable consumers to discover, research and price shop a variety of travel products, including hotels, flights, cruises, cars, vacation rental properties, tours, travel activities and experiences, and restaurants; and book a number of these travel experiences either directly on our websites or mobile apps, or on our travel partners' websites or mobile apps.
Our Long-Term Growth Strategy
In
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believe that Tripadvisor's influence in the travel ecosystem remains significant. Our long-term growth strategy aims to increase customer engagement on our platform and drive profitable growth through:
• building products that delight travelers by reducing friction throughout the travel planning and trip-taking journey; • driving consumer loyalty to our platform by offering products and services that increase engagement with our platform and result in membership growth, mobile app engagement and repeat usage; • investing in technology (e.g., machine learning) to further improve the experiences we can deliver to consumers and travel partners on our platform; • deepening travel partner engagement on our platform by expanding the number of products and services we offer; • leveraging our platform's unique attributes to expand and grow our offerings such as hotel business to business ("B2B") services, direct-to-consumer products and services where consumers pay us on a per trip planned or an annual subscription basis, both click-based and display-based media advertising, and experiences and restaurants; • driving operational efficiencies; and • opportunistically pursuing strategic acquisitions.
Business Trends
The online travel industry in which we operate is large and also highly dynamic and competitive. Our overall strategy is to deliver more value to consumers and travel partners in order to generate more monetization on our platform. While we operate with a long-term growth focus, our specific growth objectives and resource allocation strategies can differ in both duration and magnitude within our segments. We describe these dynamics, as well as the current trends affecting our overall business and reportable segments, key drivers of our financial results, and uncertainties that may impact our ability to execute on our objectives and strategies, below.
COVID-19
The COVID-19 pandemic has caused a significant negative impact on the travel,
hospitality, restaurant, and leisure industry and consequently adversely and
materially affected our business, results of operations, liquidity and financial
condition during the three months ended
Commencing in late
Traffic trends on our websites have improved since the significant declines seen
in the second half of
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Our consolidated revenue for the three months ended
In the fourth quarter of 2020, multiple COVID-19 vaccines were approved for
widespread distribution throughout various parts of the world, including
In response to the impact of the COVID-19 pandemic, we took several steps to further strengthen our financial position and balance sheet and maintain financial liquidity and flexibility, including, but not limited to, restructuring activities, reducing our ongoing operating expenses and headcount, additional borrowings of debt, and amendments to our 2015 Credit Facility, all of which are described in more detail below.
Liquidity
During the first quarter of 2020, we borrowed
In
In addition, during
We believe these measures provide us additional flexibility which will be important given our continued limited ability to predict our future financial performance due to the uncertainty associated with COVID-19, as well as consumer behavior and restrictive measures put in place in response to COVID-19.
Refer to "Note 5: Debt" in the notes to the unaudited condensed consolidated financial statements in Item 1 on this Quarterly Report on Form 10-Q for further detailed information about our 2015 Credit Facility, 2025 Senior Notes, and 2026 Senior Notes.
Cost Reduction Measures
During the first quarter of 2020, the Company instituted a cost reduction initiative to preserve cash flows, including targeted workforce reduction measures largely in the Experiences & Dining segment, in addition to optimizing and reducing brand advertising
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as the Company pivoted to leverage newer mediums we believe will be more effective than our historically television-focused campaign.
During the latter part of the first quarter of 2020, and in response to the COVID-19 pandemic, the Company instituted additional cost reduction measures, including the elimination of the majority of discretionary spending, business travel and non-critical vendor relationships, brand advertising, as well as cessation of nearly all new hiring and contingent staff, reduction of targeted employee benefits and the furlough of over 100 employees.
The Company incurred pre-tax restructuring and related reorganization costs of
On
• Enacting a workforce reduction eliminating more than 900 employees; • Furloughing additional employees bringing the total furloughed employees during March andApril 2020 to approximately 850 employees, primarily in our European operations at TheFork; and • Making targeted reductions of the Company's office lease portfolio, primarily either through subleasing or allowing property leases to expire.
Later in 2020, nearly all of the Company's previously furloughed employees had
returned to their jobs; however, during the fourth quarter of 2020, the Company
again furloughed approximately 400 employees, primarily in our European
operations of TheFork, all of who largely remained furloughed as of
We have continued to maintain these cost-reductions measures during the first quarter of 2021 and expect the majority of these costs saving to continue for the remainder of fiscal 2021.
CARES Act and Other Governmental Relief
In
In addition, certain governments have passed legislation to assist businesses
during the COVID-19 pandemic through loans, wage subsidies, wage tax relief or
other financial aid. Some governments have extended or are considering extending
these programs. The Company has participated in several of these programs,
including the CARES Act in the
For additional information on income tax and other benefits recorded by the Company under the CARES Act and other governmental relief programs, refer to "Note 6: Income Taxes" in the notes to our unaudited condensed consolidated financial statements in Item 1 on this Quarterly Report on Form 10-Q.
Hotels, Media & Platform Segment
Our Hotels, Media & Platform segment is comprised of: Tripadvisor-branded hotels revenue and Tripadvisor-branded Display and Platform Revenue.
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Tripadvisor-branded hotels revenue primarily includes hotel auction revenue and, to a lesser extent, hotel B2B revenue, which includes click-based revenue generated from hotel sponsored placement advertising that enables hotels to enhance their visibility on Tripadvisor hotel pages, and subscription-based advertising services that we offer to travel partners. Tripadvisor-branded Display and Platform Revenue primarily includes impression-based advertising revenue.
Our overall strategic objective in our Hotels, Media & Platform segment is to preserve profit while driving increased customer engagement and monetization on the Tripadvisor platform. We seek to achieve this by delivering consumers compelling products and a holistic user experience, as well as by offering travel partners a diverse set of advertising opportunities.
For consumers, we test and implement product enhancements that deliver a more engaging and comprehensive hotel shopping experience. This includes providing rich, immersive content - reviews, photos, videos and ratings, among other contributions, increasing the number of travel partners and properties as well as the available hotel supply on our platform. We believe providing consumers tools to discover, research, price shop and book a comprehensive selection of accommodations helps increase brand awareness and brand loyalty and, over time, can result in deeper consumer engagement, more qualified leads delivered to travel partners and greater monetization on our platform.
We seek to monetize our influence through hotel-related product improvements, supply and marketing efforts and customer advertising opportunities. Historically, we have generated a significant amount of hotel shoppers from search engines, such as Google. A hotel shopper is a visitor to our sites that views either a listing of hotels in a city or a specific hotel page. Our key ongoing objective related to traffic acquisition is to attract or acquire hotel shoppers at or above our desired marketing return on investment targets. Over the long-term, we are focused on driving a greater percentage of our traffic from direct traffic sources rather than search engines, which comes with little to no traffic acquisition costs.
As noted in the "COVID-19" discussion above, during the three months ended
Over the long-term, we believe that improving our offerings to deepen consumer
engagement on our platform will enable us to more effectively monetize our
influence. For example, in Tripadvisor-branded display and platform revenue, we
enable travel partners to amplify their brand, generate brand impressions, and
potentially drive qualified leads and bookings for their businesses.
Historically, we have limited both the type and number of display-based
advertising opportunities we make available to travel partners, particularly on
mobile phone, which, in turn, has limited display-based advertising revenue
growth. However, we continue to work on initiatives to better leverage our
audience, content, data, travel influence and platform breadth to open up new
media advertising opportunities through a more modern, high-powered advertising
suite spanning native, video and programmatic solutions. We intend to broaden
our solution to a larger set of advertising travel endemic and non-travel
endemic advertising partners, including industries such as entertainment,
spirits, and finance. On the consumer side, we are focused on making Tripadvisor
membership more valuable for consumers. As an example, during the second half of
2020, we introduced our first direct-to-consumer offerings. The first was Reco,
a travel concierge service that connects travelers with a curated community of
expert trip designers in local travel destinations. Then in
These efforts demonstrate our continued focus on increasing the quality of customer engagement on our platform, including driving membership growth, increasing personalization, and innovating our mobile app experience. We believe delivering - and improving upon - a great experience for users will encourage more users to use our products and services more frequently, increase member growth and member engagement, and drive loyalty to our brand, products, and services. In turn, we believe this makes our platform more attractive for travel partners, and can result in increased monetization over time.
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Experiences & Dining Segment
Our Experiences & Dining offerings contribute to the comprehensive user experience we deliver, which we believe helps to increase awareness of, loyalty to, and engagement with our products, drive more bookings to Experiences & Dining partners and generate greater revenue and increased profitability on our platform. Given the significant market opportunities in these large categories, we expect to continue to invest in building these offerings to drive consumer engagement, bookings and revenue growth for the long-term.
During the three months ended
Throughout the pandemic, we have explored new initiatives to delight and engage consumers. For example, we improved our page speed time and began offering contextual recommendations on our sites, as well as the beta-launch of Tripadvisor Plus, which offers our members discounts on experience bookings on Tripadvisor.
Other
Other is a combination of our Rentals, Flights & Car, and Cruise businesses and
is not considered a reportable segment. Similar to our other business units,
Other financial results continue to be adversely and materially impacted by the
COVID-19 pandemic during the three months ended
Employees
As of
In response to the COVID-19 pandemic, we have in place business continuity programs to ensure that employees are safe and that our teams continue to function effectively while working remotely.
Seasonality
Consumers' travel expenditures have historically followed a seasonal pattern.
Correspondingly, travel partners' advertising investments, and therefore our
revenue and profits, have also historically followed a seasonal pattern. Our
financial performance tends to be seasonally highest in the second and third
quarters of a given year, which includes the seasonal peak in consumer demand,
traveler hotel and rental stays, and travel activities and experiences taken,
compared to the first and fourth quarters, which represent seasonal low points.
Due to the impact of COVID-19 on our business, however, we did not experience
our typical seasonal pattern for revenue and profit during the calendar quarters
within the year ended
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Critical Accounting Policies and Estimates
Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that management use judgment and estimates in applying those policies. We prepare our consolidated financial statements and accompanying notes in accordance with GAAP. Preparation of the consolidated financial statements and accompanying notes requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as revenue and expenses during the periods reported. Management bases its estimates on historical experience, when applicable and other assumptions that it believes are reasonable under the circumstances. Actual results may differ from estimates under different assumptions or conditions.
There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated financial statements. We consider an accounting estimate to be critical if:
• It requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate; and/or • Changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.
There have been no material changes to our critical accounting policies and
estimates as compared to the critical accounting policies and estimates
described in our Annual Report on Form 10-K for the fiscal year ended
Significant Accounting Policies and New Accounting Pronouncements
Refer to "Note 2: Significant Accounting Policies" in the notes to our unaudited condensed consolidated financial statements in Item 1 in this Quarterly Report on Form 10-Q for an overview of new accounting pronouncements that we have adopted in the first quarter of 2021 on our unaudited condensed consolidated financial statements.
There have been no significant changes to our significant accounting policies
since
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